FASEA Risk Assessment and Management 4

Question 1

Under FASEA's framework, which document serves as the primary written record of a risk-based advice recommendation and its justification?

Accepted Answer

The Statement of Advice (SOA)

Answer

The Statement of Advice is the legally required document that must set out the advice, its basis, and any significant risks relevant to the client.

Question 2

Which of the following scenarios most clearly demonstrates the risk of 'scope creep' in financial advice?

Accepted Answer

An adviser recommending a product outside the agreed advice scope without client consent

Answer

Scope creep occurs when an adviser provides advice beyond the agreed and authorised scope, exposing both the client and the practice to unmanaged risks.

Question 3

FASEA's ethical framework classifies which of the following as a 'non-financial risk' in a client's advice situation?

Accepted Answer

Client cognitive decline affecting decision-making capacity

Answer

Cognitive decline is a non-financial risk that can impair a client's ability to make informed decisions, requiring additional care and safeguards from the adviser.

Question 4

An adviser recommends an aggressive growth strategy to a client without conducting a formal risk assessment, relying instead on verbal discussion. This most likely breaches which FASEA obligation?

Accepted Answer

Standard 8 — acting with care and diligence

Answer

Standard 8 requires advisers to take reasonable steps to identify client objectives and circumstances, which includes conducting a proper documented risk assessment.

Question 5

Which of the following best describes 'sequencing risk' in the context of retirement advice under FASEA?

Accepted Answer

The risk that poor investment returns in the early years of retirement permanently reduce portfolio longevity

Answer

Sequencing risk refers to the danger that early negative returns in retirement can permanently deplete capital before markets recover, a critical consideration in retirement planning.

(FASEA) Financial Adviser Standards and Ethics Authority Practice Test

(FASEA) Financial Adviser Standards and Ethics Authority Practice Test

FASEA Risk Assessment and Management 4